Consumers’ Expenditure

Spending patterns of the average American household and how they change over time are matters of great importance to marketers. The most comprehensive source of data on both the spending habits and the social, demographic, and economic characteristics of American consumers is the Consumer Expenditure Survey of the Bureau of Labor Statistics. Comparisons between studies reveal useful insights. For example, the decade from 1972-73 is one of the most tumultuous periods in recent US economic history. It included two major oil price increases, several years of double digit inflation, stagnant productivity, record high interest rates, and the most severe recession since the great depression. In spite of this, however, there was little overall change in how Americans divided their budgets among expenditure categories. But within categories, considerable reshuffling was done as consumers worked to maintain their standards of living. The same factors of income, prices, and demographics will determine future spending.

The largest spending categories are housing, transportation, food, personal insurance and pensions and clothing (accounting for about 80 percent of expenditures), with health care, entertainment, and cash contributions constituting the remainder. Notice, also, that amounts pent and indexed expenditures for expenditures for spending categories differ considerably among age segments.

Data on consumer spending suggest that when their incomes are falling, consumers try to keep their standard of living at the same level by taking out loans or by using their savings. Although income is certainly the most important determinant of household spending, the strength of consumer demanded during the last decade was not due to high family incomes, but rather to the growth in the number of households as a result of the baby boom generation’s maturing. During the next fifteen to twenty years, however, the pattern will reverse as consumer spending is based more on the increasing affluence of households rather than on a large growth in numbers.

Since spending on many items varies strongly by age, household size, and composition, demographic shifts will affect spending patterns of the future. It is known, for example that the average age of the American consumer will continue to rise, that the percentage of single person households will decrease as some of those who have postponed marriage will now marry, and that two income families will continue to grow. Such changes may shift expenditure patterns, leading to more growth in spending on entertainment, housing, health care, food away from home, and appliances and services that allow these households to increase the value of their leisure time. Such a pattern may, in turn, lead to growth in mail-order companies, one stop shopping malls home computers to track bills and finances, room service from house and apartment dwellers and new options in home entertainment.

The last portion of our equation regarding what constitutes a market is the consumer’s willingness to buy. Consumers’ discretionary demand is a function of both ability to buy – primary income and willingness to buy. Thus, it is the combination of these two elements that holds the key to future buying. One indication of willingness to buy is the consumer’s plans for future spending.

Two important organizations active in the quest to determine consumer confidence and spending plans are the Conference Board and the University of Michigan. Consumer surveys attempt to blend psychology and economics to achieve an accurate estimate of consumers’ willingness to buy. Questions covering personal finances business conditions and buying conditions are not intended to establish the absolute level of consumer sentiment at any given time, but to measure the direction and degree of change. One can also analyze why these changes in consumers’ attitudes and expectations occur and how they relate to later shifts in consumer behavior.

Reports provided by consumer surveys are closely watched by such major companies as General Motors, RCA, and General Electric and by major banks. The surveys not only help businesses anticipate trends in the economy, but also help in understanding the past.